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Hba2302:Advanced Taxation Question Paper

Hba2302:Advanced Taxation

Course:Bachelor Of Commerce

Institution: Meru University Of Science And Technology question papers

Exam Year:2012

QUESTION ONE (30 MARKS)
a. Discuss the term back duty as used in the income tax Act (3 Marks) b. Explain tax arrears and how they arise (4 Marks) c. Tax is imposed on the gains or profits from any employment or service rendered. D.S TRIVED VS C.I.T. In the light of the above statement, explain the tax benefits arising out of the following, referring to possible cases to support your argument i. Gifts by employer to employee (4 Marks) ii. Tips from the customers derived (2 Marks) iii. Awards from employer for best personal performance/ achievement (4 Marks) d. Discuss the concept of mutuality in general law (3 Marks) e. Kamongo is savings and credit society and has the following income statement for the year 2010.
Kamongo income statement 2010
Sh.(000)
Interest from loan to members 500,000
Rental income 250,000
Investment dividends 10,000
Interest savings 20,000
Fixed deposit 30,000
2
870,000
Less expenses 200,000
610,000
Compute total taxable income for 2010 siting the provisions for such incomes (10 Marks)
QUESTION TWO (20 MARKS)
a. The income tax act imposes stiff penalties in order to discourage tax evasion. However the rate of compliance is still very low. What alternative measures has the government taken to improve compliance? (10 Marks) b. Explain income tax provisions on taxation of petroleum companies (6 Marks) c. Discuss the terms: i. Petroleum company (2 Marks) ii. Petroleum operation (2 Marks)
QUESTION THREE (20 MARKS)
a. The profit and loss account of Ratari a trader, shows the following for the year ended 31.2.2008 Sh. Sh. Sales 200,000 Less cost of sales: Opening stock 30,000 Add purchases 60,000 90,000 Less closing stock 40,000 50,000 Gross profit 150,000 Other incomes: Post office savings bank Interest 20,000 Tax reserve certificate interest 4,000 Barclays bank interest 2,000 Sweepstake winning 6,000 20,000 180,000 Less expenses sundry expenses: 90,000 Net profit 90,000 The following information is also available: 1. The sundry expenses in the profit and loss output includes: i. Cost of bicycle used in the shop bought in may for sh. 4,000 ii. Subscription of sh. 2,000 to Matumbo welfare association of which he is a member iii. Depreciation of assets sh.3,200
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2. Tear and wear deducted of sh. 2,000 has been agreed with domestic tax department
Required:
Compute the taxable income for the year ended 31.12/2009
b. What are the attributes of any tax planning (20 Marks)
QUESTION FOUR (20 MARKS)
Rai ,Sai and Tai former school mates who are doing business together. The business is not registered but they regard themselves as equals in it. They keep proper books of account and have been able to provide the following profit and loss account for the year ended 31 December 2005.
Profit and loss account
Sh. Sh.
Establishment expenses 800,000 gross profit 1,908,000
Rent of business premises sundry receipts 80,000
Owned by all of them jointly 180,000 interests income 72,000
Interest expenses 80,000 profit on sale f shares 200,000
Stationery and printing 120,000 gross income from farming 340,000
Lighting and heating 40,000 lottery winnings 800,000
General farm expenses 294,000 dividend (gross) 120,000
Repair of premises 40,000
Depreciation 300,000
pital
Rai 80,000
Tai 120,000
Salary to Sai 160,000
Commission to partners:
Rai 96,000
Sai 96,000
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Tai 96,000
Bad debt 240,000
Gift, present and charity 40,000
Donation to child welfare 200,000
Interest on loan taken to pay
Income tax 20,000
Legal charges 120,000
Net profit 398,000 _____
3,520,000 3,520,000
Additional information:
1. Capital allowances have been agreed as follows: wear and tear allowance sh. 80,000 farm works deduction sh. 120,000 2. The partners had borrowed sh. 400,000 with a hope of investing it on fixed securities to earn more income. Interest rates nevertheless declined. Interest expense of sh.72, 000 relate to this loan. 3. Legal charges include sh. 40,000 paid to finish a case in the customs department. 4. In 2005, the partners brought forward losses amounting to sh.800,00 from this business.
Required:
a. Computed taxable income derived from the partnership (12 Marks) b. Show allocation among partners (8 Marks)

Prescribed rates Annual rates sh.(000)
a. Saloon, Hatchbacks and estates. 43,200
1201 – 1500cc 50,400
1501 -1750cc 69,600
1751 – 2000cc 86,400
2001 – 3000cc 103,200
Over – 3000cc 172,800
On 2% of the cost incurred to acquire the car.
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b. Capital allowances Wear and tear Class I 37.5% Class II 30% Class III 25% Class IV 12.5% c. Industrial buildings 2.5%
Rate: 2008/2009
Annual income ( ksh) tax rate
On the first 121,968 10%
On the next 114,912 15%
On the next 114, 912 20%
On the next 114, 912 25%
An all income over 466,704 30%

Hba2302:Advanced Taxation Question Paper

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